Explore the findings of the trillion portfolio simulations and practice Portfolio Simulator yourself to determine the optimal VC portfolio construction.
The optimal early-stage venture capital portfolio relies on 2 widely used approaches:
- A large portfolio with more randomly allocated capital.
- A small, concentrated portfolio consisting of investments in the best-evaluated companies.
The early-stage VC portfolio’s performance heavily depends on the following variables:
- Decision quality
- Portfolio size
- Ticket sizing
- Whether or not, and how much, you follow-on
- Upper bound on ROI (of a single investment)
A deeper analysis of the variables, influencing VC portfolio performance, brings practical tips and valuable insights to design an optimal portfolio construction:
- The probability of increasing the fund grows, and the probability of losing the fund decreases with the growing size of your portfolio.
- The probability of higher multiplying the fund increases with investments into fewer companies, while the risk of losing also increases.
- To keep the probability of deliberately multiplying the fund with a lower risk of losing, create a large portfolio. Doubling the fund is almost a certainty for portfolios larger than 200 companies.
- Investing equal amounts in every company in the portfolio is a good moderate strategy.
- From the fund’s perspective, it is better not to make follow-on investments, unless it’s absolutely the best way for you to deploy that capital.
Run some experiments with the Portfolio Simulator by Moonfire to define your own optimal VC portfolio strategy.
Source: Moonfire